The U.S. Federal Reserve gained some breathing room as last month's Consumer Price Index (CPI) came in well below expectations.
The Bureau of Labor Statistics at the U.S. Labor Department said on the 14th that June CPI fell 0.4% from the previous month. That was below the market forecast of a 0.1% decline. On a year-on-year basis, it rose just 3.5%, undershooting Wall Street's projection of 3.8%.
Core CPI, which excludes energy and agricultural products, was flat at 0% from the previous month. Services prices, to which the Fed attaches significance, also showed no change. As crude oil prices eased somewhat, the energy index fell 5.7% from the previous month. Gasoline and heating oil prices both dropped more than 9%. Gasoline prices in particular fell by the most since 2022. Analysts said the temporary easing of the surge in energy prices driven by the war in Iran, which had continued through last month, relieved consumers' price burden.
Given the situation, the probability of a rate hold this month soared to 86% immediately after the CPI release. According to the Chicago Mercantile Exchange (CME) FedWatch Tool, the probability that the Fed will hold rates at its regular meeting this month stands above 80%. Kevin Warsh, the Fed's new chairman, expressed confidence in the semiannual monetary policy report he will submit to the U.S. House Financial Services Committee. "The Fed's primary goal is to get monetary policy right," he said. "If we do that, the sharp inflation of the past five years will become a thing of the past."
However, some analysts say inflation cannot be viewed with optimism given the rapidly changing situation in the Middle East war. U.S. President Donald Trump, in resuming airstrikes on Iran, stated that he would impose a 20% toll on merchant ships passing through the Strait of Hormuz. According to a survey of 72 economists conducted by The Wall Street Journal (WSJ) the previous day, experts' average forecast for the annual CPI increase was raised to 3.4% this time from 3.2% in April. The forecast for the core Personal Consumption Expenditures (PCE) price index also rose to 3.2% from 2.9%. In the market, more than half of respondents anticipate a possible rate hike in September.
